Nonprofits Help Donors Choose, Spend WiselyShrinking budgets and a sluggish economy have charitable donors looking more closely at the organizations to which they donate. Some nonprofits are leading an effort to identify which charities give the most bang for the buck.

Check Out Charities Online

This site rates and analyzes more than 5,300 of the nation's largest charities. Ratings are based primarily on a nonprofit's financial health. It includes the percentage of funds spent on fundraising and administrative costs, and compares that with the amount spent on providing services.

The Better Business Bureau's Wise Giving Alliance reports on how well charities meet certain standards, such as being publicly open about their finances. It has evaluated more than 1,200 national nonprofits. Regional Better Business Bureaus have evaluated an additional 5,000 local charities.

This is a relatively new site that includes reviews of nonprofits posted by users, similar to restaurant or travel sites. So far, most of the reviews are extremely glowing and written by volunteers. The site could become more useful as more people participate.

This site specializes in faith-based charities and includes ratings on a nonprofit's financial efficiency. It also grades groups by how open and transparent they are about their operations. It publishes donor "alerts" about charities with exceptionally high salaries or questionable practices.

There's not much time left to make your charitable donations for 2008. With a tight economy, many people want to make sure their donations are spent wisely. Now, some nonprofits are leading an effort to identify which charities give the most bang for the buck.

One of those who takes charitable giving seriously is Nageeb Sumar, of Washington, D.C. He and his wife want to be smart about where they donate. They're a young, professional couple with limited funds. But charity is important to them.

"This year, for example, we wanted to focus on giving to at least one charity that's locally based. We think it's important to give back to your local community," Sumar says.

He also thinks hunger is an important issue. Unlike many people, who might just write a check to the local food bank, Sumar did his homework. He went to a Web site called Charity Navigator, which rates the financial health of more than 5,000 nonprofits, giving out from one to four stars.

"So, if we go to the Web site and can click on the organization that we supported, it's actually called D.C. Central Kitchen," explains Sumar, as he pulls up the site on his home computer.

He says he found the group by searching the site for charities located near his home. He then whittled down the results by selecting only those with the best, or four-star, rating.

"Then you can filter by keyword as well. So, if we type in 'hunger,' then it lists five organizations it comes up with that are doing work in the D.C. local area to combat hunger," he says.

Sumar says he and his wife were especially impressed with the description of D.C. Central Kitchen's mission. Besides feeding the poor, it trains homeless people to work in the culinary industry.

Sumar also checked a site called GuideStar, which displays a charity's tax forms. These show the salaries of top employees, another thing that matters a lot to him. He wants most of the money he gives to go to those in need.

Business-Like Rigor

But even with all this effort, there's one thing neither site — nor any, for that matter — can tell Sumar: how effective his charity actually is.

"Unfortunately, nobody's really been able to answer that question as of yet," says Sandra Miniutti, vice president of marketing for Charity Navigator. She admits her site has limits.

"We can tell you, for example, if a food bank is spending more on its programs this year versus last year, if they're feeding more people. But we can't tell you how nutritious those meals are," she says.

And that's a big concern, especially as the economy tightens and charitable dollars become scarcer. Some in the nonprofit world would like to see more business-like rigor at charities.

"I have seen lots of very well-intended organizations waste lots of money because they have not been able to get a firm plan in front of them," says Steve Butz, who heads a Baltimore company called Social Solutions.

Butz is leading an effort to get nonprofits to be more accountable. He's convened something called the Working Group for Effective Social Investing, which includes the heads of Charity Navigator and GuideStar, as well as such other nonprofit leaders as United Way.

Butz says just because a charity has low fundraising and administrative costs — which might get it a four-star rating — doesn't necessarily mean it's doing a good job.

"What we would have people focused on is whether or not the organizations they want to support are effective," he says. "And so that would start with, do they have a strong theory of change? Do they understand their target population? Do they understand what services they're providing and, frankly, the outcome that should come from those services?"

And whether they can claim credit.

"Are they able to say, you know what, it is this program, it is this young leadership program that's transforming these kids into young leaders?" Butz says.

But it's not easy to collect and assess all this data. Elizabeth Boris, director of the Urban Institute's Center on Nonprofits and Philanthropy, is also part of the working group.

"A lot of nonprofits don't have, or don't feel they have, the time or the technology or the know-how, really, to do this," Boris says.

She says it's extremely complex. The Urban Institute is working on its own project to help measure a charity's effectiveness. But Boris says a solution is many years away.

In the meantime, nonprofit experts advise donors not to put too much stock in any one rating system, but to collect as much information about a charity, from as many sources as possible, before sending in a check.